Tuesday, October 11, 2011

Market Outlookc as at October 11, 2011

Our FBMKLCI broke above the psychological 1400 level & tested its accelerated downtrend line at 1415 this morning. If it can break above this level, it could potentially test the medium-term downtrend line that stretches back to July 11. The resistance posed by this downtrend line is at 1445, which coincides with the strong horizontal line. On weakness, FBMKLCI can find support at the psychological 1400 level or at the short-term uptrend line at 1395. See the chart below.


Chart: FBMKLCI's daily chart as at October 11, 2011 (Source: Quickcharts)

How should we play this rally? It depends on whether this is a bear rally or the beginning of a new upleg. To qualify as a new upleg, you need at least an upside breakout above the 1445 level (preferably the 1450 level). Failure to surpass this level would simply mean that the downtrend is still intact & the market may slide off again. As you know, that’s what we called a bear rally or a corrective move within a bear market.

If you wish to trade now, you should buy either when FBMKLCI breaks the 1415 level or when it pulls back toward 1395-1400. Once you have gone long in the market,you should aim to sell at 1445-1450 (on the assumption that this is a bear rally). If FBMKLCI can break above 1445-1450, you should get back into the market (on the possibility that the market could be entering into a new upleg).

(Note: I have highlighted the word 'possibility' because it is a possible event, not necessarily a probable event.)

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5 comments:

  1. sookpengWednesday, October 12, 2011 12:36:00 AM

    Hi Alex,
    Any opinion on US market outlook that influences the rest of the world ?

    ReplyDelete
  2. Alex LuWednesday, October 12, 2011 3:59:00 PM

    Hi sookpeng,

    The huge size of the US economy means that it will have a significant impact on the global economy. The US stock market is a barometer of the US economy. So, a bearish US stock market would weigh heavily on the global equity market, with a few exceptions.

    ReplyDelete
  3. JoachimWednesday, October 12, 2011 5:40:00 PM

    Hi Alex,

    Have you seen such strong rebounds during the 2008/09 crisis or even earlier?

    Many of my friends are jumping back into the market right now as they are afraid to miss "a new bull market".

    Rebounds such as this really test one's faith if one is a bear and choose to stay in cash.

    ReplyDelete
  4. Alex LuFriday, October 14, 2011 11:03:00 AM

    Hi Joachim

    I have seen equally strong rebounds during the 2008/09 crisis. They were so convincing that I thought I must comment more favorably on the market. And, when it kept going up for the next few weeks, I was very pleased with my comment. But, alas it tumbled down again. That was a bear rally to sell. See my two market calls in April 2008 below:

    http://nexttrade.blogspot.com/2008/04/market-outlook-as-at-april-1.html

    http://nexttrade.blogspot.com/2008/04/market-outlook-as-at-april-15.html

    ReplyDelete
  5. JoachimSunday, October 16, 2011 5:03:00 PM

    Hi Alex,

    I see. Thank you for sharing your experience.

    ReplyDelete